KUALA LUMPUR: RAM Rating Services Bhd has raised its price forecast for crude palm oil (CPO) for 2016 and expects it to average from RM2,400 to RM2,600 a tonne.

The ratings agency said on Wedenesday the factors underpinning the higher price are the prolonged period of unfavourable weather conditions, which will reduce palm oil production growth.

It said the lower production growth in turn is expected to support prices. 

For the second quarter of 2016 (Q2, 2016), it expects the commodity to average RM2,400 to RM2,600, which is higher than the previous range of RM2,300 to RM2,500 expected previously.

However, RAM Ratings expect the price to ease slightly to between RM2,300 and RM2,500 in the second half during the industry’s traditionally peak production season. 

“Competition from soy oil, as well as a stronger ringgit could also weigh on the commodity’s price appreciation potential,” it said.

While slower economic growth in key consuming nations and the spillover effects on regional growth pose downside risks to demand and the price of the commodity, the palm oil market is expected to remain balanced by anticipated lacklustre production growth in 2016, it said. 

Exports from Malaysia rose 10.1% on-year in Q1, 2016, partly boosted by CPO exports brought forward prior to the resumption of Malaysia’s export duty in April. 

Total palm oil exports from Indonesia also grew by about 11% on-year during the same period.

Elsewhere, Indonesia’s biodiesel blending programme has picked up. The country reportedly collected US$212mil for the purpose (about 30% of total levy funds that it sought to raise in 2016) and consumed about 732,000 kilolitres of biodiesel in Q1, 2016. 

Further, state-owned oil company Pertamina and PT AKR Corporindo (a logistics and supply chain group that also distributes subsidized diesel in the republic) have committed to the delivery of about 1.5 million kilolitres of biodiesel between May and October 2016. 

“Although a wider gap between the prices of palm oil and gas oil would compromise the republic’s blending targets, the expected incremental usage of palm oil in biodiesel blending on-year are supportive of the palm oil market,” it said.

Source : The Star

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